So, what’s all the fuss about Bitcoin? – this new type of currency that has investor’s all scrambling to purchase. The focus on this cryptocurrency is being closely monitored as it becomes more popular especially for investors asking whether it is a legitimate investment in SMSFs. This type of investment has many Auditors asking many questions around various aspects of its existence – the simple answer is yes, it is possible to invest however important part, is to get it right.

Therefore, it begs many questions around holding Bitcoin in an SMSF environment such as:

  • Can Bitcoin be held as an investment within a SMSF;
  • Can the members contribute using Bitcoin into their SMSF; and
  • How does the Auditor approach a fund that has acquired or holds Bitcoin

An important factor in investing in Bitcoin is to ensure it is covered under the SMSF governing rules and then furthermore, the investment strategy allows this type of investment. The ATO’s view states that this type of investment is not classified as money and should be acquired through a reputable exchange and under no circumstances be acquired from its members.

Acquiring Bitcoin within an SMSF is possible via an exchange and a “wallet” is received which is ä collection of electronic keys that unlock Bitcoin addresses” to enable a specific transaction. The transactions occur between “addresses” with transactions being time-stamped every 10-15 minutes. The importance of storage is an important factor in acquiring Bitcoin within your SMSF. The Bitcoin wallet must always be in the name of the fund and never be transferred to a member’s personal Bitcoin wallet. An SMSF will need to consider insurance for this investment as this cyber-currency is only in its infancy but extremely volatile and its future remains uncertain. All evidence of Bitcoin transactions, purchases and market values must be strictly kept safe and provided to the Auditor each year.

The current stance from the ATO in the event this type of investment is sold within a SMSF is it will trigger tax consequences and if held for longer than 12 months, the CGT discount will apply. And if a capital gain is made on the disposal of Bitcoin whilst the SMSF is in retirement phase, the tax rate could be as low as 0%.

The important factors from an Auditors perspective is around ownership, valuation and of course existence? So, you can imagine Auditors are taking extra measures to ensure that SMSFs are compliant with the governing deed, are in line with the fund’s investment strategy and are holding all relevant evidence in relation to this type of investment. Ownership is ensuring the Bitcoin is held in the correct name. Is there satisfactory evidence showing that the investment was initially setup correctly? The Bitcoin transaction history is easily identifiable with history of transactions being time stamped regularly.

For the most, this crypto-currency is still a large unknown however it is important that Auditors become familiar and have a full understanding so that they are capable of auditing any SMSF that holds Bitcoin.

If you have any questions or would like to speak to an Accountant about Bitcoin and Superannuation please contact Director, Advisor and PJT Investment Specialist Wayne Patten on 5413 9300.